Moore on Pricing: Six developments changing the jet stream for air cargo

I asked a pilot friend of mine if the large change in the upper level jet stream that we’ve been experiencing on the ground as unusual weather is having an impact on flight times and costs. While he said that the real impact has been on airport operations, he pointed out that there are significant changes in the “business jet stream” that will have an impact on both carriers and shippers.

I asked a pilot friend of mine if the large change in the upper level jet stream that we’ve been experiencing on the ground as unusual weather is having an impact on flight times and costs. While he said that the real impact has been on airport operations, he pointed out that there are significant changes in the “business jet stream” that will have an impact on both carriers and shippers.

Air shippers take note because these six developments are expected to affect both cost and service.

1. In the short-term, more global air cargo capacity will be absorbed by a steady improvement in economies of trading countries. The semiconductor industry, that serves as a bellwether for air cargo, is reporting that sales grew for nine consecutive months through November 2013.

And with that news, airfreight growth jumped up this January compared to January 2013, according to the International Air Transport Association (IATA). They further report that global freight ton-kilometers rose 4.5 percent year over year in January of 2014, representing a significant improvement over the 1.4 percent full-year growth reported for 2013 over 2012. As reported in LM, there is modest upward pressure on rates in 2014—and all current data support continued upward pressure.

2. As offset from the first trend, capacity is still growing and load capacity utilization is still in the 45 percent range in some key markets such as the European Union, according to IATA. This will enable air shippers to continue to shop for competitive pricing for some time.

3. An abundance of natural gas—convertible to jet fuel—and successful testing of biofuels will continue to keep pressure on oil-based fuel companies. Despite oil industry efforts to slow their development in aviation, such as the U.S. Congress inhibiting alternative fuel development by the Air Force, biofuel for jet aircraft has passed numerous tests and is being introduced by several international airline companies.

4. Despite high levels of concern for productivity and the threat of the U.S. Air Cargo Advance Screening (ACAS) regulations, security procedures have not yet inhibited commerce. This is not to say that security processes and regulations will not affect airfreight in the coming years, but the controls will continue to become routine and an accepted part of everyday operations.

5. The drones are coming. Numerous articles have appeared about pilotless aircraft for military use. Recently, a flight test of a drone fighter/bomber was announced, and the technology for a plane to fly itself is very well established and is working in many aircraft today. While the thought of pilotless passenger aircraft gives everyone pause, the idea of a cargo jet completing a flight on its own is more acceptable. This notion will take time for approval, however the decision is more a matter of politics than technology.

6. Domestic manufacturing is coming back. In fact, the U.S. Federal Reserve said in its year-end report for 2013 that all 12 of its districts had steady growth in manufacturing. The changing technology and global political climate—not to mention the weather—are causing disruptions and forcing companies to consider more domestic sourcing.

Advances in robotics and 3D printing will certainly continue to reduce the need for rapid transport over long distances of small, valuable merchandise. And as countries realize that they could be more self-sufficient and conserve their higher paying jobs, they will incentivize companies to stay local.

The industry is watching world politics and trade negotiations closely, as we should. And as these events make manufacturers nervous, they may hesitate in multinational expansion. “Protectionist measures are part of the reason for a slower expansion of world trade than we would expect from current levels of industrial production,” says Tony Tyler, IATA’s director general and CEO. “Companies continue to reorganize supply chains in their efforts to move manufacturing on-shore.”

These are just some of the trends up in the jet stream that shippers and carriers should be monitoring. As opportunities arise for innovation, we need to look for improvements in cost and service and deliver both.

June 15, 2016

About the Author

Peter Moore

Peter Moore is Adjunct Professor of Supply Chain at Georgia College EMBA Program, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at [email protected]

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